A second look at the Premier Boxing Champions platform

That was the viewership for “Premier Boxing Champions” on NBC on March 7. While it won’t go down in the sports record books for audience, it offers a significant increase from any viewership figure recorded in the U.S. boxing industry on HBO or Showtime in the past 10 years. The PBC premiere on Spike TV averaged 869,000 viewers with a peak of one million, which is 20% higher than the average viewership for Bellator MMA on Spike but simply a decent number in the bigger picture. The West Coast tape delay doesn’t help at all and is a big issue with the advent of this thing called the “internet.”

Since February, a myriad of announcements have been made in regard to PBC’s multi-year time buys across numerous networks. The projected number of dates for 2015 are as follows:

NBC: five on prime time and six on afternoons (Saturday). 11 total.

NBC Sports Network: nine dates on prime time (Saturday).

Spike TV: nine dates (Friday).

CBS: eight dates (Saturday) plus potential CBS Sports Network dates.

Bounce TV: data unavailable.

ESPN/ESPN Deportes: five dates plus one potential ABC event.

Expected Announcement – Telemundo: (Spanish Broadcast)

Prior to knowing the extent of the multiple network agreements PBC would make, I assumed they were shooting for one large, exclusive network deal down the road in order to secure a “king size” budget and a return on the investment. Now based on the publicly available information regarding the multi-year, multi-network agreements with PBC, it seems like the plan is to show proof of concept and possibly garner multiple deals across all the networks once the “time buy” period is over. This effectively increases the total potential license budgets controlled by PBC down the road in addition to choking out distribution points for potential competitors. It wouldn’t make sense for Haymon to “warm up” multiple networks on boxing only to sign only one exclusive deal. This would allow for a potential competitor to sign with the networks PBC left, much like Bellator stepped in as the MMA provider to Spike once the UFC left for FOX.

As it stands right now… the group of Golden Boy Promotions, Top Rank Promotions, Main Events, K2 Promotions and the rest all must share a percentage of HBO’s annual $30 million license budget range. You could say Top Rank or Golden Boy lead that pack with access to an estimated one-third of that budget, which equates to $10 million or so. Both Top Rank and Golden Boy have annual license fee deals with UniMas and FOX Sports in the range of $1-$2 million annually. Top Rank has already secured an output deal with truTV, a well-distributed but weak inherent viewership cable outlet. I don’t foresee that the TruTV deal will exceed $3 million in annual license fees based on the quality of Top Rank’s first scheduled event.

PBC currently controls the entire Showtime budget of an estimated $30 million rather “unofficially.” This puts them clearly in front of the pack, based on this alone.

Obviously pay-per-view revenue is not being factored into this as it is money generated directly from the consumer. Floyd Mayweather Jr., Manny Pacquiao, Saul Alvarez, and Miguel Cotto are considered the only current pay-per-view draws in the U.S. When combined with the proper opponent, perhaps Juan Manuel Marquez can be included as well.

The question that has popped up consistently for many industry folks is: What is PBC’s ultimate goal and how will they sustain themselves on the way there?

I’d estimate that the following three things are the key goals:

Controlling boxing budgets across multiple networks.

Controlling boxing content across those networks.

Continued expansion and sales.

This is all hypothesizing but it appears that it all boils down to showing proof that the PBC concept can draw ratings that satisfy the network enough to warrant an annual license fee that, in turn, satisfies PBC’s investors. The next two-to-three years will be the trial/courting period. It isn’t clear how much funding they have in place but it’s rather clear that the team behind the venture has been in the industry for quite some time and they likely accurately projected the costs of production, gate, international television revenue, short-term sponsorship, staffing and marketing. To lament over the profit/loss of each event is nonsensical, being that this is a minimum of a 24-month play spanning over 100 total events.

It’s not impossible to fathom that PBC’s financial war chest can potentially rise as high as $500-to-$600 million or more. It doesn’t equate to the total amount being secured at the current moment but their high-profile backers of CVC Capital ($46 billion in funds)/Waddell & Reed aren’t exactly lightweights when it comes to securing funding.

(Just for perspective…the UFC debuted its first “The Ultimate Fighter” series on Spike in 2005 via a “time buy” situation on the network in which the UFC would cover the $10 million production cost of the series with no license fee provided by Spike. Due to the success of the first “TUF” series and subsequent events, by 2007, Deutsche Bank arranged a $350 million round of financing with an additional $100 million loan in 2009 for continued expansion. By 2010, the UFC sold a 10% stake in the company to Sheikh Tahnoon Bin Zayed Al Nahyan of Abu Dhabi. There have been no official statements made about the amount of money generated from the 10% sale.)

My theory is that the “strategy” of rival boxing promoters that is based on “hoping PBC runs out of money” or “continues to lose money on events” isn’t a very good one…seriously.

I do believe that PBC and the networks can ultimately garner agreements that look similar to this at a minimum if the ratings remain “decent” at best:

That would equate to an estimated total of roughly $70 million in annual license fee agreements at the low end. Combine this with Showtime’s budget of roughly $30 million and you have a total of $100 million in annual license fee agreements across multiple networks that would essentially be controlled by one promoter. Like I stated in a prior article, if PBC can garner comparable ratings on NBC as the UFC on FOX (which garnered a $100 million annual license fee), $25-to-$35 million annually is rather heavily discounted in my opinion. By 2011, Spike was paying an estimated $35 million annually to the UFC for its content. While “PBC on Spike” will likely not reach the viewership UFC experienced during that time period, if viewership surpassing that of the current “Bellator on Spike” numbers are sustained, between $8 and $12 million annually is realistic in my eyes.

For even more frame of reference, NBC is paying the NHL $200 million annually for about 100 games. The ratings for the NHL is 1.7 million average viewers on NBC and 351,000 average viewers on NBC Sports. That is roughly a $2 million license fee average per game for a rating that is basically half of what the first PBC event on NBC generated. Yes, I do believe a $25-to-$35 million annual license fee for PBC for 20 events is more than realistic if the ratings hold up.

If you really wanted to do apples-to-apples when comparing the viewership of NHL on NBC and UFC on FOX to the potentiality of PBC on NBC, you could be looking at $50-to-$60 million annually rather clearly.

The one opportunity I see for PBC in this scenario based on the current “time buy” play is being able to retain “X” amount of advertising time even when future license fees are paid by the network. This could, in turn, offer the opportunity for a discounted license fee by the network and more control over future revenue by PBC’s direct sales.

Example for NBC: Over the course of the two-hour, 30-minute broadcast, a total of 50 30-second spots are available. In 18 months, PBC is able to secure Corona, General Motors, Verizon, and GEICO as core sponsors. Each company gets an average of five 30-second spots as part of the sponsorship agreement. This would equate to 20 out of the 50 total ad spots directly sold by PBC. This would mean 60% of the inventory or 30 ad spots are free to be sold by the network. Using an average of $50,000-per-30-second spots would equate to $1 million for PBC directly from its core sponsors (obviously advertising rates will vary drastically based on which channel is showcasing the PBC product).

The sponsorship packages for network and cable television can provide much more value for the rights holder compared to premium cable events due to those 30-second spots that offer tangible, measurable value.

(According to the Wall Street Journal, in 2011, the average price of a 30-second spot for college football on ABC, CBS, or NBC averaged $93,700. It is no mystery that the average rates for college football have skyrocketed since then. In Sept. of 2014, Variety magazine reported that the average cost of a 30-second spot on ABC for college football had risen to about $159,000. The average viewership is in the 5.1 million viewer range. According to Variety magazine, a 30-second spot for Saturday night sports on FOX averages about $85,000. In an article in Adweek in 2013, Peter Vesey, VP of Ad Sales for Fox Sports Media Group stated that 30-second ad spots on UFC on FOX programming remained above $100,000. If boxing can stay in the 3.5 million average viewer range on NBC/CBS, a $50,000 price tag for an ad spot is rather reasonable and attainable in my eyes. That would equate to a CPM of $14 for live sports programming, which is rather discounted compared to the network television average of $24.)

These numbers are obviously estimates but it doesn’t mean they aren’t realistic if the networks, brands and PBC can come to an agreement that provides value for all parties. “Value” is largely predicated on comparing it to alternative forms of advertising and programming. That is where PBC has a lot of opportunity based on the current inflated prices of ad/sponsor/programming rates for the big three sports (baseball, football, basketball) both professional and college.

Another added benefit of this “time buy” period for PBC is the opportunity to build their foreign television distribution as a platform rather than just on an event-by-event basis. They can present the entire 70-80 annual events to over 150-160 countries that currently showcase boxing regularly and purchase rights to “big-time” boxing events. Once the “time buy” period is over, obviously PBC would retain their international syndication deals going forward and negotiate strictly domestic licensing deals with NBC, CBS, Spike, etc.

(Just for reference, MMA upstart organization Bellator has sold their foreign rights distribution to Electus International, who has secured rights deals in 120 countries thus far. I believe this is one of the major benefits in operating as a platform/brand rather than on predominantly on an event by event basis. For further reference, the total foreign rights secured for the one-off event for Mayweather-Alvarez was reported as $3.2 million without inclusion of international pay-per-view countries. Is it that far-fetched that PBC could secure an average of $500,000 per event in international television revenue down the road once they are able to secure distribution across 150-plus countries? The global population is growing as is access to television so who knows?)

Based on what I’ve outlined, it wouldn’t surprise me that, by 2018, a combination of total license fees, sponsorships and international syndication for the PBC platform across all networks can generate $150 million annually from the television broadcasts alone. The thing about their model is that once the platform is established, much like other sports, it can start to put pricing pressure on networks and sponsors to increase the license fees. 2018 would likely mark the beginning of the ascend, not the end. This is the business cycle boxing has been missing out on due to the top networks being premium cable-based.

There is also much potential in the digital space but there’s a current paradigm in sports where it makes little sense to cannibalize TV dollars with digital dimes. Being that the next several years is a “time buy,” there might be a potential to develop an extensive digital distribution strategy as the networks don’t “own” the content. So far I haven’t seen anything of that sort as NBC has directly taken care of the most recent stream. There are way too many unknowns right now to predict where PBC will go in terms of the digital landscape in the near future. The shift/synergy will happen at some point without a doubt.

Whether pay-per-view will be included in the PBC model remains to be seen. It wouldn’t surprise me to see them lock May and September down as two annual pay-per-view events regardless of who is in their stable. With access to marketing these two events continually across eight-to-10 networks throughout the year, there is potential for them to sell well without the names “Mayweather” or “Pacquiao” attached to them. I do believe that it would best serve them to avoid anything past three-to-four pay-per-view events on an annual basis though.

It’s clear as day that PBC is looking to build a brand that garners the name recognition synonymous with boxing as the NBA has done with basketball. It’s also quite clear that NBC, Spike, CBS, etc. do not expect PBC to continue paying for the “time buy” indefinitely past the current agreement date (it wouldn’t surprise me to see some of these networks reach a licensing agreement prior to the expiration of the “time buy” period if the ratings are good enough). Too many industry insiders simply do not comprehend the fact that sponsors understand brands and not generalities. In speaking with multiple specialists in the field of sports sponsorships, this was the clear divide between boxing and the rest of the sports.

The questions that arose regularly were simply: What am I sponsoring? What is the brand? Where does this event stand in the overall landscape of boxing?

Football is a sport but the brand of the NFL is far different than arena league football, Pop Warner or semi-pro football. The value of the brand names and what they stand for are what sponsors look to align themselves with. The NFL is generally accepted as employing the best players in the world with the biggest football events.

Boxing is a sport, not a brand. The biggest brand in boxing outside of the fighters is HBO. The brand of boxing promotional entities have difficulty resonating with sponsors as it doesn’t fit their business model to spend the necessary dollars to promote their brands and create a concept that stands out among the general public.

While they aren’t in any way, shape or form a “lock” to succeed, PBC is attempting to fill that void that has plagued boxing for quite some time.

They are placing themselves in a powerful position to sell themselves as the premier brand in boxing based on their premium production and distribution on well-established networks.

While I do agree with most critics that the production of the events seem to be overly dressed up, I believe this is being done not so much for the consumer but more so in order to provide differentiation points for potential premium advertisers and international television networks. One of the main differences boxing fans will likely see on the PBC platform is much more subdued R-rated “heat” for the fights. It is simply the nature of corporate sports and something that will not go unnoticed by the longtime boxing fan.

I’m not going to lie…the raw emotion and carnage of boxing on premium networks and pay-per-view leading up to the fight are part of the entertainment but I guess you can’t have it all.

On one side, you have a sport that has weak accessibility, stale distribution, low potential for growth and is subsidized directly from the consumer via premium cable and pay-per-view.

On the other side, you have a sport that has strong distribution, ease of access, decent potential for growth and is largely “free” to the consumer on OTA (“over the air”) and regular cable outlets via advertising.

It is what it is.

One of the flaws with this “top end” model of PBC is the live gate. That is one aspect of boxing that tends to grow organically as ticket buyers usually have some emotional attachment to the fighters on the card. Without that emotion, all the marketing in the world will fail to make serious dents in the live gate. I cringe to think about the amount of money being spent on the production of these events while being forced to give away a high percentage of the tickets in order to create a “TV-friendly” atmosphere. This won’t “kill” the PBC model in the short term but it is an aspect of the platform that will need to be adjusted down the road.

While there were rumblings that many of the networks PBC purchased time from were bound to begin investing more in boxing prior to this “takeover play,” it appears as though Haymon and Company pounced on the opportunity to take advantage of this in the “potential projected economics” and speed up the elevated license fee process.

For instance, say Spike was looking to invest $100,000-to-$200,000 ($1.5-to-$2.5 million annually) per 12 yearly boxing events prior to PBC coming along. This would have provided a well-received amount to the average boxing promoter allowing them to showcase mid-level talent on their way toward HBO. It would also allow the boxing promoter to pocket a good amount for themselves in the process. However, there would be little incentive for Spike to ever increase this amount significantly being that fighters who made names for themselves would eventually be transferred to HBO by the promoter. This is the way the business has run for decades and this is a big reason networks other than HBO and Showtime simply do not see the point of offering substantial budgets for boxing.

PBC saw the opening to literally “create” a reason for a potential premium-sized budget from the same network. Ultimately the ratings and relationship with the network will decide whether they will succeed.

It wouldn’t surprise me to see PBC take a $200-to-$250 million “loss” in the first 24 months. It also wouldn’t surprise me to see each network currently working with PBC to eventually secure, multi-year agreements in which they pay PBC for the product/brand. This would provide financial stability for the PBC platform that has the potential to lure new investors into the fold. Once this happens, it wouldn’t surprise me to see PBC sell off stakes of their brand in order to recoup their $200 million “loss.” Venture capital firms do this all the time: plunk down money, build, resell percentages to recoup the initial “plunk” and retain the lion’s share to sell at inflated prices down the road. It’s not as if CVC Capital is looking to directly recoup their investment via ticket sales or advertising. It’s not as if they are sweating bullets over low ticket sales the way a promoter who depends on earning a profit each and every time does. They are banking on securing television agreements, both domestic, international and possibly even digital expansion while continuing to build each stream of revenue year over year to increase the value of the PBC brand and sell percentages at premium prices.

In 2006, CVC Capital invested $2 billion into Formula One racing in order to acquire 63.4% ownership. According to Forbes, by 2014, CVC had already received $4 billion in dividend payouts with the potential to earn a total of $8.2 billion, if it sold all of its shares in Formula One.

This is the game that’s being played.

Will PBC ultimately reach a value exceeding $10 billion within the next 10 years? I don’t see it.

Will PBC ultimately reach a value exceeding $1-to-$2 billion within the next decade? It’s very much possible if they can continue pushing the envelope in terms of network agreements and a few blockbuster pay-per-views annually.

There are some industry insiders wondering how PBC will continue to afford paying $1 million-plus purses to their fighters. It wouldn’t surprise me to see them build the model and restructure all the purse agreements being there is the potential for fighters to secure endorsements – and the related notoriety – via the distribution platform. Most of the top athletes in the world earn a significant share of annual revenue from endorsements. The sport itself provides the platform for them to perform. It wouldn’t surprise me to see PBC hire athlete endorsement specialists much like Roc Nation Sports does in-house for their stable of athletes.

I don’t see any of PBC’s domestic rivals going out of business within the next 18 months but 60 months down the line could be a different story. The industry’s current operating margins are thin as it is and I expect them to get thinner as PBC continues to put pricing pressure on everyone. The problem that could arise is when PBC starts to compete directly with HBO for their handful of marquee fights/fighters.

Will HBO reach into their pockets to “compete just to compete” or will they throw in the boxing towel altogether as it makes little financial sense to continue in the industry showcasing “less than the best” fights? HBO can always simply focus on what they do best and most importantly earn the highest return for their investment, which is produce premium-level original series and documentaries.

The upcoming purse bid on April 17 for the proposed Adonis Stevenson-Sergey Kovalev bout will be a pivotal point in HBO Boxing’s future. While the bout is celebrated among hardcore fans for ultimately crowning the best 175-pound fighter, it would hardly be expected to draw anything higher than 1.6 million average viewers at best on HBO. If the premium network gets progressively drawn into bidding wars with PBC, unless, at some point, there is tangible evidence that ratings are significantly increasing and new subscribers are signing up to HBO specifically for boxing, it will make little financial sense to keep throwing money at a branch of the network that continues to degrade its own margins.

If I were a rival to PBC, I would definitely begin starting to think outside of their current “box.” Directly competing with them at the premium level is fine in the short-term but rather futile in the long-run, I believe.